ECO 2301

A profit maximizing perfectly competitive firm would never operate at an output level where
A. it would not cover all of its variable costs.
B. it was not earning a positive economic profit.
C. it was not earning a zero economic profit.
D. it was not earning an accounting profit.

In the short run, if a firm's price is greater than its AVC but less than its ATC, the firm should:
A. shut down immediately because it is generating an economic loss.
B. shut down temporarily because it is generating an economic loss.
C. continue operating because it is generating an economic profit.
D. continue operating even though it is generating an economic loss.
E. none of the above

When economic profits are positive in a perfectly competitive industry,
A. we would expect the market supply curve to shift to the left as a result.
B. we would expect the market supply curve to shift to the right as a result.
C. we would not expect any change in the market supply curve to result.
D. we would expect that the market demand curve to shift right as a result

A perfectly competitive firm cannot make economic profits in the long run because:
A. it is a price taker.
B. there are no barriers to entry into the industry.
C. it faces a perfectly elastic demand curve.
D. its advertising costs will rise to eliminate any economic profits.

During a period when new entrants are being attracted to an industry, we would expect that:
A. economic profits are positive.
B. economic profits are falling.
C. economic profits are rising.
D. both a. and b. are true.
E. both a. and c. are true.

In short run equilibrium in a perfectly competitive industry whose firms are earning economic profits, a firm:
A. has no incentive to change its output.
B. has no incentive to change its plant size.
C. has no incentive to expand its factory.
D. has no incentive to leave the industry.
E. has no incentive to do any of the above.

Many communities have granted monopoly rights to cable companies. This is an example of a monopoly created through:
A. government licensing.
B. ownership of the cable resources.
C. patent protection.
D. smart business practices by shrewd entrepreneurs.

Which of the following is false?
A. A true or pure monopoly exists where there is only one seller of a product for which no close substitute is available.
B. The situation in which one large firm can provide the output of the market at a lower cost than two or more smaller firms is called a natural monopoly.
C. In monopoly, the market demand curve may be regarded as the demand curve for the firm because it is the market for that particular product.
D. A monopoly firm is a price maker, and it will pick a price that is the highest point on its demand curve.
E. None of the above are false.

Which of the following is NOT potentially a barrier to entry into a product market?
A. patent protection on the design of the product
B. the absence of economies of scale in the product market
C. government licensing of the product's producers
D. the control of a crucial input necessary to produce the product
E. All of the above are potentially barriers to entry into a product market.

Which of the following best explains why a monopolist's marginal revenue is less than the sale price?
A. To sell more units, a monopolist must increase the price on all units sold.
B. As a monopolist expands output, its average total cost declines.
C. When a firm has a monopoly, consumers have no choice other than to pay the price set by the monopolist.
D. When a monopolist reduces price in order to sell more units, it must lower the price of some units that could otherwise have been sold at a higher price.

Graphically, the marginal revenue curve of a monopolist:
A. lies below the demand curve of a monopolist.
B. is the same as the demand curve of a monopolist.
C. lies above the demand curve of a monopolist.
D. is the same as the marginal cost curve of a monopolist.

The demand curve of a monopolist is:
A. is identical to the marginal cost curve.
B. downward sloping and above the marginal revenue curve.
C. downward sloping and below the marginal revenue curve.
D. kinked because of recognized interdependence with other firms.
E. horizontal at the market price.